Global Markets End on a Positive Note with Emerging Markets leading Gains

Sat, 13 May RoundUp

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Global financial markets ended the week on a positive note with a boost from emerging markets. The share markets of Brazil, Hong Kong and Japan were up 3.8%, 2.8% and 2.2% respectively. However, share markets in United States and France were down marginally by 0.5% each.

The Brazilian markets were up on the expectation of the economy exiting deep recession. The Brazilian economy grew in the first quarter, Finance Minister Henrique Meirelles listed metrics such as steel output and car sales to illustrate how the economy was exiting a deep recession. Gross domestic product (GDP) data for the first quarter will be released on June 1.

US markets ended the week lower by 0.5% this week. This was on the back of soft retail sales and monthly inflation data that raised concern about slow economic growth. Further, it also raises question about whether the Federal Reserve could maintain its aggressive outlook for interest rates this year.

The Bank of England said on Thursday that it may raise interest rates before the end of 2019. With just a month before Britain's general Election, The BoE said the short-term squeeze on households from inflation since June's Brexit vote would be more severe than it predicted in February.

Key World Markets During the Week

Back home, Indian stock markets closed higher by 1.1% over the last week. The markets saw a record closing high during the week. Stocks from Realty, Telecom and Auto sector rallied during the week after some good results and positive management commentaries for Fiscal 2018.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by.

In news from macro economy, the UN Economic and Social Commission for Asia and the Pacific (ESCAP) in its latest report has said that Indian economy will grow 7.5% next year by consumption revival and higher infrastructure spending.

Though, India's growth is projected stable at 7.1% for 2017 before surging to 7.5% next year, underpinned by higher private and public consumption and increased infrastructure spending.

In news from steel sector, as per an article in The Economic Times, domestic steel demand is expected to grow by 6-6.5% in the next five years helped by government led initiatives including National Steel Policy (NSP).

The government envisages domestic steel consumption to grow 7% through 2030 under the NSP driven by various government led initiatives in affordable housing and infrastructure sector, coupled with robust growth in automotive and capital goods segments. Among others, NSP targets to achieve 300 MT of steelmaking capacity by 2030 through additional investments of Rs 10 trillion by 2030-31.

In a bid to push the employment generation, PM Narendra Modi has directed that all proposals sent to the cabinet must state the number of jobs they can generate.

This comes as the Modi government is going all out to ensure it delivers on the promise of creating 10 million jobs. As per a Crisil report, more than 1.5 million people enter the job market every month in the country and the rapid adoption of automation, which reduces the dependence on labour, is aggravating the job crisis.

One shall note that we have a big unemployment crisis which can derail the growth of the Indian economy. As can be seen from the chart below, the situation of unemployment over the past many years has hardly changed.

As per Vivek Kaul's analysis, a little over 12 million individuals will keep joining the workforce every year in the years to come. This works out to around one million a month. And at this rate, the Indian workforce is expected to be larger than that of China by 2030.

The demographic dividend benefits a country if the government can create the right environment in which jobs are created. And from what we see, we are failing miserably on this front.

But this is not the only crisis hitting India's economy now. To know more, refer to Vivek's special report.

India Ratings & Research (Ind-Ra) has downgraded the telecom services industry outlook to negative in FY18 on expectations that carriers will be hit harder and for longer spans by Reliance Jio Infocomm's free services.

The rating company said telcos would continue to lose market share to Jio and suffer from poor profitability in FY18 and their debt burden would continue to mount due to spectrum-linked payouts and network-related expenditure.

So how can one make money in a rising market, with little support from earning trends and with brokerages getting it all wrong?

We believe a few super investors could provide the clue. These are the guys who've beaten the markets black and blue and have an eye for multi bagger stocks irrespective of the macro environment.

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To know more about these superinvestors and their stock picking approach, download a free copy of - The Super Investors Of India.

Movers and Shakers During the Week

Source: equitymaster

Company	05-Apr-17	12-May-17	Change	52-wk High/Low
Top Gainers During the Week (BSE Group A)
CG POWER & INDUSTRIAL SOLUTIONS LTD	77.75	91.15	17.2%	93/56
BHUSHAN STEEL	76.5	88.65	15.9%	91/35
UNITED SPIRITS	1,895.7	2,173.1	14.6%	2,729/1,775
IDEA CELLULAR	81.7	92.3	13.0%	124/66
EICHER MOTOR	25,837.5	29,169.6	12.9%	29,983/18,006
Top Losers During the Week (BSE Group A)
DENA BANK	46.5	40.1	-13.8%	50/28
GLENMARK PHARMA	846.25	759.35	-10.3%	993/729
YES BANK	1,608.7	1,483.85	-7.8%	1,653/944
APOLLO TYRES	245.4	227.3	-7.4%	253/139
CANARA BANK	394.55	366.15	-7.2%	415/171

Source: Equitymaster

Some of the key corporate developments in the week gone by.

As per an article in The Financial Express, TVS Motor announced its entry into the Central American region in countries such as Guatemala, Honduras, El Salvador, Costa Rica and Nicaragua. As part of this plan, TVS Motor has entered into an alliance with Guatemala-based MASESA (Mayor Servicios Socieda Anonima) for distribution of two and three-wheelers and develop dealerships.

As per the reports, TVS Motor, through MASESA, will set up 600 dealerships over the next 12 months and expects to sell around 10,000 units a month. It aims to capture 25% market share in the Central America region, which has an annual size of US$250 million. Currently 22% of TVS Motor's total revenue comes from exports.

Like the Gulf region, Central American countries are integrated and hold huge opportunity for TVS. It had recently announced a capital expenditure of Rs 5 billion for capacity expansion at its plants across the country as well as product development.

IT major Infosys has reportedly delayed salary increases to at least July and even later for senior employees, even as it played down fears of job cuts and started taking steps to reduce operating costs.

For employees ranked JL5 (job level 5) and below -- typically those with less than eight years of experience -- the compensation review will be effective from July. Moreover, the review for other employees would be rolled out in subsequent quarters. However, the company is not planning any job cuts.

As per an article in The Livemint, Nestle India Ltd and Hindustan Unilever Ltd (HUL) have evinced interest in buying a controlling stake in Havmor Ice Cream Ltd.

Havmor Ice Cream Ltd is the seventh largest ice cream and frozen desserts maker in India with a 3.5% market share. Reportedly, the value of the ice cream and frozen desserts segment in India grew 20% in 2016 to reach Rs 102 billion in sales and is forecast to see a constant value compound annual growth rate of 11% over 2016-21.

HUL has a strong presence in the Indian ice cream space through its brands Wall's, Magnum and Cornetto. Nestle India's presence is in the premium ice cream space with its Movenpick brand.

Yes bank share price tanked 6% on Friday after the company's non-performing asset (NPA) classification varied with the Reserve Bank of India's to the tune of Rs 41.76 billion at the end of March 2016.

A higher bad loan classification would have necessitated higher provisions. The bank's actual provisions of Rs 4.64 billion fell short of the RBI's calculation of Rs 13.22 billion. Yes Bank is the first to report this divergence after RBI increased disclosure norms for banks since it noted instances of divergences in banks' asset classification and the provisioning required as per RBI norms.

Explaining the RBI's assessment, Rana Kapoor, Yes Bank's MD and CEO mentioned that the gross NPAs increased largely due to one single cement borrower (Jaiprakash Associates), the exposure to which stood at Rs 9.11 billion (88% of gross NPAs).

As per a leading financial daily, India's largest two-wheeler firm Hero MotoCorp posted a 13.9% decline in net profits for the fourth quarter ended March 31, 2017 on a YoY basis.

Sales volumes during the quarter under review dropped by 5.8%. Hero MotoCorp sold 16,21,805 two-wheelers last quarter compared to 17,21,240 units sold in the fourth quarter of the last financial year.

The decline came on the back of sluggish demand for two-wheelers especially in the rural areas post the government's notebandi exercise.

Also, most of the brunt in profits came on higher discounting to liquidate stocks of BS-III compliant vehicle in March. Owing to this, the company is estimated to have taken a one-time hit of Rs 2 billion to liquidate BS III stocks last month.

One shall note that, as per ratings-firm ICRA, the two-wheeler industry is estimated to have incurred a loss of Rs 6 billion due to the three-day discount offered to customers after the Supreme Court ordered a ban on sale of BS-III vehicles.

The apex court on March 29 banned the sale and registration of BS-III category vehicles or those not compliant with Bharat Stage IV (BS IV) emission norms from April.

This will impact the revenues and profitability of Indian auto players and auto ancillaries.

Cadila Healthcare (Zydus Cadila) was in focus last week as the company received a favourable judgement from a US federal court in a patent infringement case. The judgement enables the company to launch its generic product in the US market.

The US Court of Appeals for the Federal Circuit has affirmed judgement in favour of Zydus Pharmaceuticals (USA) Inc, holding that its proposed generic version of Lialda does not infringe a US patent, the company said in a statement.

Zydus was the first pharmaceutical company to file an abbreviated new drug application (ANDA) for a generic version of Lialda. Lialda is used for the treatment of remission of active, mild to moderate ulcerative colitis and for the maintenance of remission of ulcerative colitis, a chronic inflammatory bowel disease that affects approximately 700,000 people in the United States.

The Court of Appeals' decision is a major step toward Zydus providing a generic version of the drug whose annual sales in 2016 were to the tune of $714 million in the USA.

And here's an update from our friends at Daily Profit Hunter...

The Nifty 50 Index opened 26 points gap up on Monday and traded positively to hit a new lifetime high on Wednesday. It opened 42 points gap up on the next day but did not hold up as the index witnessed some profit booking for the last two days of the week. Finally, the Nifty ended the week up 1.25%. The RSI Indicator has formed a negative divergence with the index, indicating a loss of upside momentum. This might halt the rally for a while. In that case, 8,950-9,000 is the level to watch for. You can read the detailed market update here...

Nifty Hits a New Lifetime High

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